Bullish positions rebound at fastest pace in four years

Equity Rally

The GSCI gauge has surged more than 80% since the end of 2008 as central banks in the U.S., Europe and Asia started record global stimulus measures aimed at reviving economies. The Federal Reserve left its asset purchases unchanged at $85 billion a month on March 20.

The S&P 500 Index advanced to a record close last week, marking the completion of the recovery from a bear market that wiped out more than $10 trillion from the value of U.S. equities. Commodities have failed to keep up with the equity rally as four years of price gains prompted farmers and miners to increase production. The GSCI is still 27% below its record close reached in July 2008.

Production will outpace demand in aluminum, copper, lead, nickel and zinc in 2013, Barclays said in a March 14 report. Cotton and sugar also will see surpluses, according to Rabobank International. U.S. crude stockpiles reached the highest since June in the week ended March 22, a government report showed March 27. American growers will plant the most corn since 1936, the U.S. Department of Agriculture said the next day.

Southern Hemisphere

“There’s been a lot of capacity added across the board,” said Peter Sorrentino, who helps manage about $14.7 billion of assets at Huntington Asset Advisors in Cincinnati. “There’s additional acreage in farmland, and some of the drought conditions in the southern hemisphere have eased. For industrial commodities, there’s been a huge amount of capacity added in terms of all the metals. We’re not going to see a lot of push on pricing.”

Wagers on declining copper prices increased to a net-short position of 30,036 futures and options, the CFTC data show. That’s the most-negative outlook since the data begins in 2006. Investors are also still betting on declines for heating oil, coffee, hogs, sugar, soybean oil and wheat.

Fund managers pulled $92 million from commodity funds in the week ended March 27, Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows, said in an e-mail. Gold funds had an outflow of about $23 million, he said.

Goldman View

The GSCI lost as much as 1.3% this year before erasing declines. The price slump in raw materials was “overdone,” Goldman Sachs Group Inc. said in a March 7 report, raising its outlook for commodities to “overweight” from “neutral.” The Washington-based International Monetary Fund is predicting global growth of 3.5% in 2013, up from 3.2% in 2012.

“The biggest surprise could be growth begins to accelerate, and oil and metals prices move to the upside,” Jeffrey Currie, the head of commodities research at Goldman in New York, said in an interview. “History says that you never want to be short commodities during an economic expansion. The risk is more to the upside than to the downside, should the economy accelerate.”

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